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Ramalingam Kalirajan |10872 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Sep 17, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Jun 26, 2025Hindi

Hi Sir, I'm 30 year old IT professional. Want to create wealth to be financially independent by 40-45 by investing in mutual funds. I have a home loan of 57 Lakhs. Even though my emi is 45000 I'm paying 70000 to reduce the principal/interest outgo. I can invest 30000 per month, how should I allocate my investments? Also is it advisable to continue preparing home loan 25k extra as the repo rates are going south? Thanks in advance sir

Ans: You have taken wonderful first steps already. Paying extra on the loan and thinking of wealth creation early is very thoughtful. Many people delay such planning. You are already on the right path. I will share a 360-degree view for you with detailed steps.

» Assessing your current financial base
– You are 30 years old, so time is on your side.
– Your monthly EMI is Rs. 45,000, but you pay Rs. 70,000.
– Loan outstanding is Rs. 57 lakhs.
– You can invest Rs. 30,000 monthly in mutual funds.
– Target is financial independence at 40–45.

This shows strong financial discipline. Paying extra EMI reduces interest, but we must balance loan repayment with investments for wealth creation.

» Understanding home loan prepayment strategy
– Extra EMI reduces future interest burden and shortens loan tenure.
– But repo rates are falling, so loan rates may reduce gradually.
– Prepaying aggressively in falling rate cycles gives smaller advantage.
– You may save more in investments compared to reducing low-interest loan.
– Future inflation-adjusted wealth matters more than small interest saved.

So, instead of paying Rs. 25,000 extra every month, you may divert part of it to investments. Continue normal EMI, but channelise surplus into wealth-creating instruments.

» Why investments should not be ignored
– Compounding works best when investments run for long years.
– Extra loan repayment brings guaranteed savings but not high returns.
– Mutual funds, when chosen carefully, can beat loan interest rate in long term.
– Your financial independence target needs large wealth creation, not just debt freedom.

So, a balanced approach between EMI and investment is better for you.

» Suggested approach for loan versus investment
– Maintain EMI at Rs. 45,000, do not reduce discipline.
– Reduce extra EMI gradually.
– Divert at least Rs. 15,000 from extra EMI into investments.
– Keep the other Rs. 10,000 flexible. Use it sometimes for loan prepayment and sometimes for extra investments.
– This gives you both debt reduction and wealth growth.

» Structuring your mutual fund investments
– Rs. 30,000 monthly can be divided across different categories.
– Growth-oriented funds are suitable for your 10–15 years horizon.
– Equity funds should take majority allocation.
– Balanced allocation across large cap, flexi cap, and mid cap helps.
– Debt funds should take a small portion for stability and liquidity.

So, plan like this:

Rs. 22,000 into diversified equity funds.

Rs. 5,000 into mid-cap or aggressive growth-oriented fund.

Rs. 3,000 into short-term debt fund for emergencies.

This structure balances growth, risk, and safety.

» Why avoid index funds in your case
– Index funds look simple but have limits.
– They only copy the index and cannot beat it.
– They lack professional management in active form.
– They often give average returns with no downside protection.
– Active funds with experienced managers adjust allocation during market cycles.
– This helps you in long-term wealth building and risk handling.

So, active funds are better than index funds for your goal of independence.

» Regular funds versus direct funds
– Direct funds appear cheaper because they save commission.
– But there is no guidance or monitoring with them.
– Wrong selection or wrong exit timing can hurt wealth.
– With regular funds through a Certified Financial Planner, you get reviews.
– Guidance ensures correction if market or fund underperforms.
– The little cost is worth long-term wealth stability and confidence.

So, avoid direct plans and prefer regular funds with CFP guidance.

» Emergency fund and insurance
– Before investing fully, keep at least 6 months’ expenses aside.
– It can be in liquid fund or savings-linked account.
– This protects you from sudden job or health risks.
– Health insurance is must in today’s time.
– A term insurance policy with cover of at least 15–20 times annual income is needed.
– Without these, your investments may get disturbed during emergencies.

» Building path to financial independence
– You aim for freedom by age 40–45, which is 10–15 years away.
– Wealth creation in this time needs focused equity allocation.
– SIP discipline is most powerful tool here.
– Increasing SIP amount every year with salary hikes will help.
– Avoid stopping SIPs even in down markets.
– Markets recover and long-term investors benefit most.

» Tax efficiency of investments
– Equity mutual funds enjoy favourable tax structure.
– Long-term gains above Rs. 1.25 lakh are taxed at 12.5%.
– Short-term gains are taxed at 20%.
– Debt mutual funds are taxed as per your income slab.
– Holding investments long term and managing withdrawals carefully improves tax efficiency.

So, plan to stay invested for at least 7–10 years.

» Evaluating your goal amount
– Financial independence means covering lifestyle expenses without working.
– Estimate your monthly need after 10–15 years with inflation.
– Investments must create corpus that generates this monthly income.
– More equity allocation today helps reach that corpus.
– Rebalance portfolio as you get closer to independence.
– Shift part of wealth to stable funds after 40 for income safety.

» Behavioural discipline in wealth journey
– Consistency matters more than chasing best fund each year.
– Avoid panic during market corrections.
– Stick to systematic investing approach.
– Review portfolio once a year with CFP, not every month.
– Avoid unnecessary churning or switching.
– Keep patience, wealth builds silently but strongly.

» How to handle future surplus
– Salary increments and bonuses can be added to investments.
– Gradually increase SIPs by 10–15% yearly.
– Windfall money or incentives can be split between loan prepayment and investment.
– This way, you enjoy faster debt clearance as well as higher wealth.

» Why early planning is a gift for you
– Starting at 30 gives you at least 15 years runway before 45.
– Compounding in equity works strongly during this window.
– The wealth you create now can support lifestyle freedom.
– Very few people think at your age with such clarity.

» Managing risks effectively
– Market risk is temporary, but not investing risk is permanent.
– Diversification across fund categories reduces shocks.
– Emergency fund avoids breaking investments in crisis.
– Insurance avoids financial disruption to family.
– Disciplined reviews ensure risks are corrected early.

» Role of professional guidance
– Regular funds with CFP support ensure right strategy always.
– Portfolio alignment with your goal is monitored.
– Tax planning, withdrawal timing, rebalancing all get handled.
– This professional touch increases chances of reaching independence smoothly.

» Final insights
– Continue EMI of Rs. 45,000 without stress.
– Divert majority of extra Rs. 25,000 into investments.
– Build diversified mutual fund SIPs with focus on equity.
– Avoid index and direct funds, prefer actively managed regular funds.
– Keep emergency fund and adequate insurance ready.
– Increase SIPs gradually with income rise.
– Stay patient, disciplined, and avoid emotional investing.
– With this, you can achieve independence by 40–45 confidently.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.